EU electricity market needs reform

A debate organised by the European Economic and Social Committee (EESC) revealed that it was crucial to adjust the European electricity market in order to overcome its weakness, the heavy dependency on gas, to finally provide EU consumers and companies with reliable and affordable energy.

The current EU electricity market has to be reformed. Adjustments are needed to achieve the three basic objectives of a sustainable energy system: security of supply, affordable costs and prices and climate neutrality.

This is the main conclusion of the thematic debate held on 12 April 2023 in Brussels by the Section for Transport, Energy, Infrastructure and the Information Society (TEN) and which brought together representatives of both the public and private sectors.

The 2022 report of the EU Wholesale Electricity Market Design, drafted by the European Agency for the Cooperation of Energy Regulators (ACER) shows that the weakness of the EU's current energy market is that it is dependent on gas, so the recent spike in gas prices has triggered a massive increase in energy prices.

"It is important not to create new long-term dependencies on fossil fuels to compensate for the gradual independence from Russian gas and oil supply," said TEN president Baiba Miltoviča. "While the transition towards a cleaner and more sustainable energy system must remain the priority, the diversification of supply is key to a fast and effective reaction to the crisis."

Towards a new EU electricity market

Since the adoption of the REPowerEU Plan in 2022, the EESC has adopted a number of recommendations pushing for energy markets that are better integrated and bring about real benefits. According to the Committee, the post-crisis energy markets must focus on innovation and competition, with appropriate market rules and a strengthened level playing field. Market design must be adapted to prevailing renewable energies and create the necessary conditions for businesses and new participation opportunities for citizens.

In order to make the EU energy market more resilient, in March 2023 the European Commission published a proposal to reform the electricity market design. The document aims to boost renewables, better protect consumers and enhance industrial competitiveness. Christof Lessenich, from the European Commission's Directorate-General for Energy (ENER), underlined that the reform proposal reflected the crisis experience and took inspiration from the broad consultation process.

The EESC is contributing to the debate on the design of the future market with its opinion on Electricity Market Reform, currently being drafted by Jan Dirx and Christophe Quarez. All the following conclusions and recommendations of the thematic debate will feed into this opinion, which is scheduled for adoption at the June plenary session.

Design of the future EU electricity market

According to Mr Dirx, the current electricity market was not in a position to keep prices for consumers and companies under control and the risks were being passed on to the consumers: "We have to find an approach that prevents energy poverty. Energy should not be treated as an economic good, but as a public utility, being one of the cornerstones of the EU's economic and social system. It is necessary to create regulations and conditions so that energy is reliable and affordable".

Mr Quarez stressed that it was important to pay attention to the justice of access to energy and to consider public opinion, as the energy price crisis affected European people, making them more vulnerable to populism: "We need to keep the promises of the liberalisation of the energy markets of the 90s: we need to have fair prices, there is a public service at stake, and we need to be aware of public opinion and be understandable to consumers, which translates into lower prices".

Albert Riera Muniesa, from the Spanish Ministry for the Ecological Transition and the Demographic Challenge, pointed out that the current issues of the energy market were related to the lack of long-term contracting, resulting in poorer households, industry losing competitiveness and inflation translating into banking problems. A proposal of the upcoming Spanish Presidency of the Council of the EU would be to combine short-term and long-term contracts for both electricity and capacity to boost investment in renewable energy.

Federico Benito Dona, representing the European Steel Association (Eurofer), said that the impact of the crisis on energy prices had deeply affected the competitiveness of the industry sector. The production cost of energy for steel makers had gone up 47% in the EU, compared to 22% for other international competitors. He also added that the protection of international competitiveness vis-à-vis energy prices and cost was not in the picture in EU legislation.

Peter Boerma, energy advisor, stressed that in the current market design, the last contributor needed to meet demand – which has the highest costs – sets the price and this had brought about high prices. He concluded that there was currently a lack of steering and control over pricing and that one proposal to achieve a more stable and predictable energy market was the establishment of a government facility, which would leave government in control while ensuring market freedom.